Even as mortgage production is expected to decrease industrywide, one post-refinance boom report showed that mortgage brokers have an optimistic outlook about how they will fare this year. Some of those surveyed indicate they will offer other services in addition to mortgage brokering.
Informative Research released the report, entitled Gray Skies or Sunshine? 2004 State of the Mortgage Industry, which addressed the mortgage market from brokers' perspective. The agency surveyed a group of mortgage brokers in 11 different states who do business inside and outside of those states. The responses gathered give insight into brokers' views of the industry, their own business atmosphere, and the make-up of their organizations.
As far as brokers' insight into the industry, 65% of the respondents saw the movement of interest rates -- including the actions of the Federal Reserve Board -- as having the biggest impact on the mortgage business, according to the report. However, many brokers mentioned that they believed rates would not move much until after the Presidential election.
The second top issue seen as having the most impact is the proposed changes to the Real Estate Settlement Procedures Act, or RESPA, and the Fair Credit Reporting Act, the mortgage reporting agency said. While 37% of the mortgage brokers surveyed believed these legislative issues will affect the industry overall, they were divided on whether the legislative changes would significantly impact their business. Twenty-two percent of brokers felt that upcoming legislation will be positive for their business, with one reason being that more structural restrictions might drive out those who entered the market in 2003 to take advantage of the refinance boom. Thirty-nine percent said legislation would have no effect on their business and the other 39% said it would have a negative impact.
Informative Research said some brokers mentioned they felt penalized by the proposed RESPA reform yield spread premium reporting regulations, and that large direct lenders had an unfair advantage with such regulation. The FTC recently released data that mortgage broker disclosure requirements were more likely to confuse consumers and cause them to choose a higher-cost loan from a lender because they believed those loans to be less expensive.
Among the remaining top issues brokers saw impacting the industry this year were current legislative issues, employment and the economy.
In line with the study's results, Spencer Judd, owner of Las Vegas-based Home Funds Mortgage, told MortgageDaily.com he believed rising interest rates would be the main factor influencing his business.
"The rise in interest rates is going to slow the industry down some, but I think the rates are still low enough that the change won't be horrible, the business will still be good and healthy this year," he said.
Consumer confidence was second on his list as the state of the economy would influence whether they will take money out of their homes with equity or decide on a higher mortgage payment with a new home.
He added that the one legislative issue that could greatly affect his home-operated business, which has been in existence for over two years and averages about $9 million in yearly production, is if the state of Nevada is successful in outlawing home-based mortgage businesses.
The consensus among the surveyed mortgage brokers was that there will be fewer loans originated in the market, but most predicted that the increase or decrease in loan production will be small enough to where they will see minimal to no impact on their business performance in 2004, the reporting agency said.
The positive attitudes may be a reflection of the emphasis brokers place on their relationships with customers as they not only pull business from within their previous client base, they also focus on developing relationships within the community they serve and tend to be the first point of contact for these consumers in the mortgage or refinancing process, the agency added.
Most brokers' mortgage leads are generated by client referral, according to the report, while Realtors are the second most common lead source.
Regarding the product mix of originations, the report said most brokers are sticking with more traditional products to comprise the bulk of their efforts, although some believe products such as 100% financing, interest only loans and reverse mortgage products, appear to be potentially more prevalent this year. The study found that one factor that will affect the types of loans they will sell most often is the type of borrowers they are advising -- two-thirds of the participants said they had a borrower niche. Beyond the two main categories of prime and subprime, brokers' most commonly referenced borrower focus is the nonconforming borrower, while a rising trend in borrower niche is reportedly the Hispanic market.
The agency said 78% of the brokers polled planned to work in the purchase market, and 55% of all brokers will spend more than half their time focusing on purchases. Eighty-three percent of participating brokers said they would be spending some of their energy on refinancing activities, and 30% of those brokers said that refinancing would consume 50% or more of their business efforts.
Judd said the bulk of his business so far has been refinances, but he expects it to shift to purchases the remainder of the year and also anticipates adjustable-rate mortgages will be a more popular choice than conventional mortgages.
One factor that some brokers count on to aid their business is to offer more than one service, the report said. Over two-thirds, or 68% of the brokers in the study, focus only on providing mortgages to current or future homeowners, but there is a large group of brokers who offer brokerage services with other types of related businesses. Twenty percent of the participants said they are connected or are partners with real estate or escrow businesses, 7% said they provide credit counseling services, and other services brokers said they offered were notary services, construction loans, commercial loans, tax preparation, insurance, trust services and property management.
Brokers responses indicated Wells Fargo, Countrywide and Washington Mutual were the top three funding sources, followed by Bank of America and Chase, the report said.
Responses also showed the most widely used automated underwriting engine among brokers was Fannie Mae's Desktop Originator/Desktop Underwriter, followed by Countrywide's CLUES and IndyMac Bank's e-MITS.
The agency said it found that a combined 72% of brokerages surveyed had fewer than sixteen employees, of which 39% had less than six employees.
A mere 7% of brokers admitted that they believed their staff will shrink in 2004, while the remaining 93% aim to maintain their business at a stable level, or have plans to increase their business and staff by expanding into other states or regions.
The results also showed that most mortgage brokers belong to and become certified through a state Association of Mortgage Brokers and or the National Association of Mortgage Brokers, as a form of distinction in the competition they face from other mortgage professionals and to build on their relationship base.